Bavaria is considering digital euro: Bitcoin in focus due to high risks!

Bavaria is considering digital euro: Bitcoin in focus due to high risks!

In the Free State of Bavaria, the discussion about cryptocurrencies, especially Bitcoin, is becoming increasingly intense. The position of the Bavarian State Ministry for Economic Affairs, Regional Development and Energy (StMWi) is clear: Cryptocurrencies such as Bitcoin are viewed as volatile and speculative. While the ministry emphasizes the risks of these digital currencies, there are also indications of the potential opportunities associated with blockchain technology and central bank digital currencies, such as the digital euro.

With this strategy, Bavaria aims to expand its position in the rapidly growing area of ​​digital innovation. The Free State sees itself in competition with Berlin, particularly in the area of ​​blockchain and cryptocurrencies, and would like to take a pioneering role. State funding for this technology could significantly change the economic landscape in Bavaria.

Digital money and blockchain technology

Cryptocurrencies are digital currencies based on blockchain technology. Its main purpose was originally to create an electronic payment system that worked independently of banks and states. Bitcoin, as the leading cryptocurrency, was developed in 2008 by an anonymous person or group under the pseudonym “Satoshi Nakamoto”. The system enables transactions based on mathematical rules and peer-to-peer networks.

However, Bitcoin is not without its drawbacks. The price development over the years is extremely volatile: the value fell from USD 0.08 in 2009 to over USD 60,000 and is currently around USD 23,000 (as of May 2024). In addition, transaction costs are variable and can rise, for example, from $0.30 in March 2021 to $10.76 in April 2024. This volatility and time-consuming transfers, which take about 10 minutes on average, are counteracting the potential of cryptocurrencies.

Bavaria's systematic approach

The Bavarian Ministry recognizes the risks of Bitcoin and Co., but at the same time promotes the use of blockchain technologies. This technology is considered tamper-proof because once transactions are made, they are irreversible and stored in a decentralized, public database. Wallets, digital wallets, are required to store cryptocurrencies where loss or a hack can result in a total loss.

The Federal Financial Supervisory Authority (BaFin) classifies cryptocurrencies as a “unit of account,” which means that they are not recognized as legal tender. Nevertheless, the possession, use, purchase and sale of cryptocurrencies are generally not subject to authorization in Germany, provided they are not publicly advertised. Trading platforms and mining pools are often subject to a license requirement from BaFin.

Overall, the Bavarian strategy shows an ambivalent picture: While the risks of cryptocurrencies are clearly highlighted, the Free State also offers a platform to exploit the opportunities offered by blockchain technologies. Given the rapid development in the field of digital currencies, it remains to be seen how Bavaria can further strengthen its position compared to other German cities, especially Berlin.